How to become a contract IT professional

These days, many IT consultants prefer to operate as independent contractors rather than as employees, for all sorts of good reasons. The first step to becoming a contract IT professional is understanding those reasons—weighing the pros and cons to determine which model is best for you.

What are the benefits?
One of the greatest benefits of being an independent contractor is cash flow. Income tax, Canada Pension Plan contributions and Employment Insurance premiums are not withheld from the income you receive, making your gross earnings higher than they would be if you were an employee. (Of course, you’re still responsible for paying income tax! Be sure to set aside the appropriate amount over the course of the year for payment when you file your annual return.)

Another benefit is that, as a contractor running your own business, you’re entitled to deduct legitimate expenses, as long as they are reasonable and are incurred for the purpose of gaining or producing income.

Many contractors incorporate their businesses. An incorporated company carrying on active business only pays tax at the rate of approximately 25% on its first $200,000 of net income. Incorporating also opens up possibilities of income splitting with spouses and children.

What do employers think about it?
For many organizations in need of professional IT services, hiring a contractor rather than an employee is extremely convenient. There’s no obligation to withhold taxes, CPP contributions or EI premiums—or, in the case of the latter two, to pay the employer’s share. There’s no obligation to comply with the Employment Standards Act, or to offer medical, dental and other benefits. This last point indicates one of the drawbacks to being an independent contractor: there are no benefits such as health insurance or severance entitlement. You’re operating on your own. That said, you can easily invest in your own insurance plans to offset medical, dental and other expenses.

Sounds good. So what do I do?

1. Take an inventory of your skills and experience. Consider your needs and goals in terms of expected earnings, career possibilities, minimum acceptable length of contract. Then determine the types of organizations that fit your profile.
   
   
2. Begin marketing yourself through a few channels, such as your present contract position, past employers and colleagues, and through a reputable contracting firm such as altisHR. Choose your champions carefully—go with those who will be best able to represent you.
   
   
3. Set up your contracting practice! Register your business name. Establish a proper bookkeeping system. We at altisHR can refer you to specialists who will help you protect yourself by incorporating your business and obtaining appropriate business insurance.

What can altisHR do for my business?
A lot! We meet with you to review your expertise and employment considerations. Through a verbal test we call “Tech-Out”, we have a specialist in your field confirm your level of technical expertise. This helps us promote you most effectively to our clients—organizations in which you indicate an interest.

Once we’ve pooled together some opportunities, we present them for your consideration. If you’re interested in any, we submit your resume to the associated client and schedule an interview on your behalf. (We’ll gladly help you hone your interview skills and will answer any questions you may have at this point.)

When it comes time for contracting, we can negotiate on your behalf. As experts in this area, we’re able to secure excellent offers for IT consultants. After you sign your contract and start working, we handle the payroll process—remunerating you for your services on a regular, reliable basis. And, of course, we’re here to offer continued support as you build your business and advance along your career path.

What defines a contractor relationship?
There is no single test for determining if a consultant is a contractor or an employee. The courts have instead developed a "four-in-one" test that includes:

• Control Test
  Who controls how the work is done? In an employment situation, the employer dictates the manner in which work is done. In a contractor situation, that control resides with the IT professional.
• Economic Reality Test
  Who supplies all the tools and equipment necessary to carry out the job? If it’s the company that hired you, this suggests an employment situation. Another element of this test is the basis of compensation. Do you bear your own expenses, or are you reimbursed for them? Another important consideration is whether you’re free to offer your services to the market generally. If you’re in an exclusive relationship, that would suggest an employment arrangement.
• Integration Test
  Probably the single most significant test, this measures the degree to which you’re integrated into the contracting company’s business. If you’re part of the ongoing operations and enjoy benefits, office space, company business cards, etc., then it suggests an employment relationship.
• Specified Results Test
  If you’re hired for a specific job, with no certainty of an ongoing relationship after the job is completed, you’re most likely in an independent contractor relationship. If you’ve been hired for a specific time period rather than for a specific task, and if there’s an understanding that new tasks will continue to be assigned, it indicates an employment relationship.

Find out more about becoming a contract IT professional. Call altisHR!